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Understanding Limited Company

There are a lot of choices when it comes to the structure of a business. For example: sole proprietorship, general partnership, limited partnership, limited liability partnership (LLP) etc.

 

What can a limited company do?

  • A limited company is viewed as a person in the eyes of the law, everything we can do they can do i.e. import/export, employ, borrow, lend, invest etc.
  • A limited company is an entity in its own right

 

Set up as limited

  • Owner and business are 2 separate individuals in the eyes of the law.
  • Everything purchased/sold/money received belongs to Ltd. Company

 

Advantages of a Ltd. Company

  1. Name
    1. So long as your desired company name is available, you’ll have exclusive rights and protection to that name.
  2. Protection
    1. Liabilities created – as long as no fraud has taken place, you will not be personally liable for any financial losses made by the business, if things were to go wrong.
  3. Transport of ownership
    1. When the owner wishes to stop working, business can be sold as a “trading entity” and get good will in the form of cash.
  4. Financial discipline
    1. Ltd company is governed by companies act and has specific deadlines for accounts, tax and other documents to be supplied to government authorities e.g. HMRC and companies house.
    2. This brings an important element of keeping information and books in order which helps create a seamless process.
  5. Tax saving
    1. Ltd company by nature normally saves tax compared to sole trader/partnership.
    2. As there is no National Insurance contribution on profits made by the Ltd company.
    3. The owner of the Ltd company could distribute its shares to other family members in order to save more tax.
  6. Credibility/reputation
    1. Ltd company is considered to be more organised, more financially disciplined and structurally sounder due to its legal status.
    2. Normally perceived that sole traders/partnerships are smaller businesses as they as less regulated compared with Ltd company.

 

Disadvantages of a Ltd. Company

  1. Strict regulation
    1. Ltd companies are set up under companies act 2006 and the activities of companies must comply with legal requirement
    2. In order to run a Ltd company usually you would need to engage a prof. accountant.
  2. Financial Cost
    1. The cost of running a business under Ltd company is more expensive compared with partnership/sole trader.
    2. g. for 1 director/shareholder company it would be ~ £500 more expensive than a sole trader business. However, comparing tax saving this additional cost should be covered.
    3. The tax saving from using a ltd company will make back the £500
  3. Strict due date
    1. Ltd company compliant regime is very strict, and any late submission will automatically generate a fine.

 

To find out more about Limited Companies contact us at Sterling Finance on 0161 339 4989 or email info@sterlingfinance.net.